Having suffered a spectacular fall earlier this year from around $64,000 to just over $30,000 in around two months, Bitcoin is very much back in black. At the time of writing (Friday, October 8), one BTC is trading above $54,000, edging closer to its all-time high set back in April. As speculation on its direction of travel continues, there are a number of economic factors and trends that suggest Bitcoin could be heading for that elusive $100,000 mark.
In recent weeks, some analysts have suggested that we are beginning to see a decoupling of the global stock market from Bitcoin, which would support the long-peddled but not yet proven narrative that Bitcoin is an uncorrelated asset. The analysts have pointed out that, while the S&P 500 index is down 2.53% over the past month to October 7 (source: Google Finance), Bitcoin has been soaring to new highs.
Source: google.com/finance
Over the past 30 days, the price of Bitcoin has risen from $46,665 on September 8 to $55,458 as of October 8 - a 19% increase.
Source: coingecko.com
In the current economic environment, interest rates across the developed world remain at rock bottom levels and inflation continues to rise. This means investors are increasingly searching for assets that can deliver returns uncorrelated to traditional financial markets, however these are becoming increasingly difficult to find.
READ: The internet economy and crypto: Why Bitcoin is only just beginning
Yet in recent weeks, Bitcoin has done just that. As observed last week by Bitcoin Archive on Twitter, Bitcoin is an “uncorrelated asset in a class of its own”, rising when the NASDAQ and Dow Jones indices – key indicators of the strength of the US stock market – were both in the red. If Bitcoin can secure a position as a hedge during times of market turmoil, then its future price rises are surely guaranteed.
The perfect hedge?
But this is not the only reason for the increasingly prevalent headlines in the media suggesting that “something big” might be happening with Bitcoin. Having passed the all-important $1 trillion market capitalization milestone, Bitcoin is becoming “too large to ignore”, even for the likes of the Bank of America, which recently acknowledged the importance of BTC as a financial asset in its own right.
As such, big institutional investors are increasingly gaining exposure to the world’s largest digital asset. According to data from Bitcoin Treasuries, companies with bitcoin on their balance sheets hold almost 8% of the total Bitcoin supply, some 1,660,473 BTC.
READ: Why we should all still be investing in Bitcoin
In fact, according to JP Morgan, institutional investors are the biggest driver for the recent surge in Bitcoin’s price, as they look far and wide for investments that provide a hedge against inflation. One of the original use cases for Bitcoin was as an alternative to currencies in countries with hyperinflation, so it is no surprise it is coming into its own in the current economic environment.
It looks like both institutions and individual investors are turning to Bitcoin over gold as a safe-haven asset class. Over the last 30 days, the price of gold has fallen in line with the US stock market, undermining its value as an uncorrelated asset.
Source: goldprice.org
Market drivers
Last week also saw some speculation on the potential launch of several Bitcoin ETFs. As many as four Bitcoin futures ETFs could be approved by the US Securities and Exchange Commission (SEC) in the next few weeks, according to Bloomberg. In the news-hungry cryptocurrency markets, such speculation has the power to drive prices higher.
Meanwhile, Bitcoin has shrugged off China’s blanket ban on cryptocurrency transactions. It helps, of course, that the chairman of the SEC, Gary Gensler, has explicitly stated that the US has no intention to ban crypto. As such, a reduction in China-based Bitcoin mining is by no means bad news for the digital currency, with other jurisdictions boasting more favorable regulatory regimes.
READ: How to mitigate Bitcoin losses during a bear market
Against this favorable backdrop, some market participants are expecting something big from Bitcoin. As it rises from the ashes once again after a volatile few months, supporters are seeing this as proof of the legitimacy of Bitcoin as an investment option. If they turn out to be correct, could we see Bitcoin hit a new all-time high before the year is over?
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DISCLAIMER: The content of this article does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up, and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.
